The VAT cut hailed as a lifevest for Romanian agriculture

The VAT cut is awaited anxiously by representatives of the Romanian meat, dairy, sugar and cereal industries who plead with Romanian authorities to apply this measure soon in order to help the agriculture stay afloat

2015-02-06 22:38:24 - From the Print Edition

The farmers and producers present at ′The Romanian Agribusiness Forum′ organized by The Diplomat said that a cut in the VAT would have multiple benefits such as eradicating fiscal evasion, improving tax collection to the state budget, encouraging investments and fair competition and empowering the industry to export abroad at a time when the embargo set by the Russian Federation is heavily affecting local producers.

Speakers in the first panel included Daniel Constantin, deputy prime-minister, Ministry of Agriculture and Rural Development; moderator Alex Jurconi- president, National Federation PRO AGRO; Radu Timis, president, National Meat Association; Ioan Ladosi, president, Association of Pork Producers; Camelia Sucu, Owner, Piata de Gros; Emilian Dobrescu, president, Sugar Owners' Association in Romania.

Speakers in the second panel included moderator Nadia Crisan, general manager McGuireWoods Romania; Dumitru Daniel Botanoiu, state secretary, Ministry of Agriculture and Rural Development; Dr. Lenuta Ichim, vice-president, state sub-secretary, ANSVSA; Dorin Cojocaru, president, APRIL- The Romanian Association of Owners in the Milk Industry; Victor Beznea, president, ARCPA- The Romanian Association of the Traders of Agricultural Products.

"This year, we have proven what it means to stand together for a common goal. Our goal is the cut of the VAT to nine per cent in the case of meat and meat products. The VAT campaign will continue and will put moderate pressure on the administration so that we will reach sustainable fiscal relaxation. We believe a reduced VAT for meat products as well as for fruit and vegetables, sugar and other types of food no longer needs any demonstration," said Alex Jurconi, president of the National Federation PRO AGRO and moderator of the first panel.

Producers in the meat industry have been asking for a cut in the VAT over the past two years but each time, the answer was that this measure would be applied if there is money available in the state budget to cover it. Producers urged The Ministry of Finances to show how it collects the VAT.
"If we manage to show that VAT in the meat industry [evades being] collected to the state budget - and we believe this sum stands at somewhere around 600 million Euro - this could easily prove that a nine per cent VAT would bring at least two or three times more money to the budget," said Radu Timis, president of the Romanian Meat Association.

The Romanian Meat Association had the initiative of providing a business intelligence solution, paid with its own money. This application would collect data from The Ministry of Finances and show the true degree of tax collection. This would be a way to cut some of the red tape in the institution, as the Association suggested.

Timis emphasized repeatedly that it is highly important for the state to have a clear picture of how the money is collected, in order to ensure predictability. "As a private company, the first thing that I must know is how much money I collect. How can I calculate the profit as long as I don't know how I cash the money? It is the same with the state, as long as we do not know how we collect the money, everything is uncertain. I think it would help if we were able to prove this," Timis said.

Furthermore, he argued that the current VAT level of 24 per cent also encourages fiscal evasion. "The only thing that can curtail tax evasion is a VAT that cannot be shared. Today, the only thing that is stolen in Romania is the VAT. There are differences of 70-80 per cent among companies on the market. This unfair competition kills all serious companies. Often, we see at the shelves prices which are smaller than the recipe price and we wonder how this can happen," he complained.
Moreover, the high level of the VAT at the moment places the safety of the consumers at stake. This situation threatens to become a matter of public health, warned Timis, because there are companies that buy meat which has exceeded its expiry date. "A nine per cent VAT level would help us earn money, revitalise consumption, be more competitive and approach international markets. From my point of view, the Romanian agriculture with a VAT higher than nine per cent does not have any chances of success," Timis concluded.

He also quoted a report which shows that one in four companies in the food industry will soon become insolvent.

Romanian production units are dying

Dorin Cojocaru, president of APRIL (the Romanian Owners' Association of the Milk Industry), and speaker in the second panel, shares the same view, that the Romanian producers are in a disastrous situation. He urged the government to be courageous and take the steps that are needed for saving the agriculture trade from disaster.

"I have always demanded the reduction of the VAT across the entire chain. Romania needs a courageous government that should run risks, the same as any manager of a private company. If several million Romanians say: ‘Cut the VAT because things can no longer continue this way!,' must we run the country without taking any chances? There are various institutions that can forecast the risk impact. If you do not cut the VAT in the following months, there will be nobody left to do that for. You will cut the VAT in six or nine months, but for foreign companies, not Romanian ones," warned Cojocaru.

Cojocaru quoted data from the National Sanitary Veterinarian Association for Food Safety, (ANSVSA), which showed that at January 1, 2014, there were 152 production units, which represents a sharp drop compared to 2010, when there were 423. However, after having a furtive look at the list the day before The Diplomat event, he could see that six of them were already bankrupt, while half of them had only one or two employees left and a turnover of 500,000 RON per month.
"Who are we cutting the VAT for?," he wondered. "I believe the Ministry of Finances, and even the prime-minister should get involved like a parent in the food industry, which is responsible for six per cent of the GDP to the economy. If the food industry and agriculture worked well in 2013, and everyone bragged that it exceeded the car-making industry, why not invest in a field which yields profit?," said Cojocaru.

He also urged the authorities to prepare timely strategies for the challenges ahead. He asked ANSVSA whether it had prepared to fight against the bluetongue disease and the bird flu coming from the Germany and Netherlands, which are expected to break out this spring.
"Honestly, I tell you that in three or four months, half of the dairy units will close their gates," warned Cojocaru.

He also asked the Romanian authorities about the situation of the milk trade with China. "I would like to know when we will see the first transport of powder milk because powder milk and cheese stocks are piling up to the ceiling," he said.

A lower VAT is the key for boosting consumption

Camelia Sucu, owner of Piata de Gros, who spoke during the first panel of the event also expressed her opinion in favour of VAT reduction. She argued that the reduction of the VAT to five per cent would not only grow the quantity of products made in Romania as well as the investments made in Romanian agriculture but also boost the consumption of healthy products, which are important to everyone's health. "Consumers are often buying expensive but low-quality products. A cut of the VAT to five per cent would reduce tax evasion but also directly increase the consumption of food products, and indirectly, overall consumption. As long as people pay less on food, they are left with more money to spend on other products they need," she explained.

Sucu also announced that during the last meeting of the Coalition for Development in Agriculture, she found that an impact study would prove the need to cut the VAT to five per cent. "We will carry out this impact study, and in the first part of next year we will come with fresh data," she promised.

The sugar industry risks disappearance

Even though the main initiator of the campaign for the VAT cut was the meat industry, other food producers also climbed on the bandwagon. Emilian Dobrescu, president of the Sugar Owners' Association in Romania complained that the sugar industry is faced with the same problems as other food products when it comes to tax fraud.

"A VAT of 24 per cent for sugar is one of the highest VAT levels in Europe. May I remind you that in Great Britain it is zero? The year 2017 is getting dangerously close, and at that time there will be no more production quotas in the sugar industry. From that moment on, everything that is produced in Europe can be sold in Europe, and this spells direct menace for Romanian producers," he complained.
Dobrescu also warned the sugar industry runs great risks of "dissolving just as sugar does in coffee," if not helped with fiscal relaxation measures such as the VAT cut. The same dramatic situation as in the daily industry menaces producers in the sugar industry. According to Dobrescu, from 35 sugar production units in 1990, there are only four left. The industry had a very difficult year due to a sharp drop in prices. Dobrescu said that in just 18 months, the price of sugar sank to half. "Even though sugar consumption in Romania is among the lowest, prices related to sugar production are among the most important. There is data available that shows us that VAT fraud is substantial. We support a VAT of five per cent because it would allow the black market to come to the surface and discourage fiscal fraud," said Dobrescu.

The meat industry, a "collateral victim" of the Russian embargo

"When the production costs per meat kilogram are somewhere around 6.5- 6.8 RON and the sale price is 4.5 RON, it is simple mathematics to calculate the losses. What are the causes for this situation?" wondered Ioan Ladosi, president of the Association of Pork Producers.

He said that when Russia set an embargo for European products, everyone believed that the Romanian pork industry would not be affected, because they do not export pork to Russia. However, this turned out to be totally untrue. Even though Romania does not export to Russia, the price of pork all over Europe plummeted. Romania, which still brings half of its pork from abroad, was indirectly affected. "It is true we are a collateral victim in all this, but finding solutions to counteract the effects of the embargo should be a priority for the government," Ladosi commented.
State authorities who attended The Romanian Agribusiness Forum confirmed the fact that the embargo affected Romania indirectly, due to the fact that a large quantity of raw material or food products remained on the European market where they circulated freely and prices dropped. "Maybe the Romanian food industry was favoured, because they could buy at lower prices, but Romanian producers faced a real problem. This is why we need to intervene fast, not only to tackle fiscal evasion, but also because of the situations that were created by the market - goods production, small prices, and the embargo imposed by the Russian Federation," said Daniel Constantin, deputy prime-minister in the Ministry of Agriculture and Rural Development.

However, Constantin pointed out that the embargo is a European problem and it should be treated as such. He said that during the last European meeting on the issue, Romania signed a letter, signed in total by 19 countries, which ended up on the table of the European commissioner. The letter signals that there is surplus meat production on the European market, and this puts great pressure on the prices. "I, for one, believe the EC should come up with funds for private storage, so that these surplus products do not end up on the Romanian market. Romania is the 7th largest market in the EU, so they should not impose unfair competition for producers. (…) As far as the annual commitments you proposed, I will also support your letter addressed to the Council of Ministers," said Constantin.

Authorities pledge support to sensitive agriculture sectors

The Romanian Agribusiness Forum provided the opportunity for players to discuss the measures that the authorities should undertake to support the agriculture.

In the case of sensitive sectors such as the growth of pork and poultry, Constantin said Romania has "done everything" to support these sectors, even though in other European countries such as Denmark and other Northern countries, there is no type of support for these sectors.
He explained that Romania has intervened with state money and European funds to the aid of those who respect welfare norms. "I believe it was very good that we financed this measure with EU funds starting 2012, it has yielded results over the past two years, but today we come to the conclusion that this is not enough and we should further support the development of the sector. I believe we can think about cutting the VAT for meat products to nine per cent in 2015. Our goal is to try to reduce the VAT to nine per cent but at the same time not to grow taxes to cover possible losses to the state budget and unavoidable macroeconomic imbalances," explained Constantin.

On the other hand, he was contradicted by representatives of the industry, who claim that there is some level of support for producers in every EU country.

Ladosi said that while not all EU countries offer direct support to the industry, there is indirect support available in each of these countries.

As for the support offered by Romanian authorities for the welfare measure in the case of pork and poultry, Ladosi said this was extremely useful because the industry was preparing to export the meat. "This support is not a whim, it is a commitment made by farmers for a timeframe of five years, and it should continue. It is illogical to say that in Romania no such measures should be granted because we will be viewed with suspicion by the community of European farmers, since they all benefit from some sort of support. We must be competitive and we must be able to say that the Romanian pig is raised in welfare conditions and is fit for European consumption," explained Ladosi.
He also appealed to Romanian authorities to ensure a predictable business climate in order to safeguard investments. "As any businessman, our farmers need certainty. We need to know what will happen over the next three to five years. The uncertainty in this field, where a lot of investments have been made, leads to a lockdown of the projects. Within our association, there are many members whose projects have been approved but they are seriously considering whether to invest or not in this context. We want partnership and certainty from Romanian authorities," said Ladosi.
One proposal came from Alex Jurconi, who asked state authorities to give a helping hand to farmers by creating a promotion fund through the National Program for Rural Development for Agriculture.
"Please re-allocate from the money meant for the mutual fund just one or two per cent for the promotion fund so that the pork, milk processing, fruit and vegetables, and bread industries are able to export. This will take off the pressure from the local market, which is currently blocked by a lot of problems," said Jurconi.

Last but not least, Jurconi suggested to the minister to take into consideration, when meeting the commissioner at the council of ministers, that the proposal of the pork and poultry industry to go to annual commitments will be supported via political action, because this would also take the pressure off from the market.

The scale is tipping in favour of the VAT cut

The strategy for Romanian agriculture until the 2020 horizon will have two main pillars. The first pillar aims to secure, through the National Program for Rural Development, the constant growth of production, so that national consumption needs are covered, but also Romania can equally become an important importer- exporter on European markets and third markets, said Constantin.
The second pillar includes the integration of production, which will bring added value that will benefit both farmers and the national budget.

"We are all waiting for the program to be approved by the EC. We are having constant talks with the representatives of the EC. So far, two meetings have taken place in Brussels and very many videoconferences that are taking place to improve the issues pointed out by the European Commission. I think we are on the right path," said Constantin.

Another measure soon to come into force targets the rejuvenation of the farmer population. "The measure for young farmers will have this time allocated non-reimbursable funds of 50,000 Euro for every applicant and I hope it will be available starting in February," said Constantin.
Even though The National Program will probably be adopted at a later date, in January the EC should give the green light to these measures even if the official approval for all member states will come towards May-June 2015, said Constantin.

The volatility makes the context unpredictable, agree both authorities and market players
Last year was a good year from the point of view of the results posted by the producers. However, there were great volatility and variations in prices, which are making it hard to predict future trends, complained the market players who were present at The Diplomat event.

"We see extremely high variations from one day to the next. In 2000, it was not admissible to have a two-dollar growth for cereals from one day to the next. Now we can have even 20-30 dollars growth from one day to the next," said Dumitru Daniel Botanoiu, state secretary in the Ministry of Agriculture and Rural Development.

From the point of view of the companies on the market, Romania is going through very volatile times.

Speaking from the point of view of the market of cereals and oleaginous seeds, Victor Beznea, president of the Romanian Association of the Traders of Agricultural Products, said that when comparing statistics about the relation between various stock exchange products dating 30 years ago and statistics from today, an incredible transformation is revealed. "Today, there are countless factors that influence the price of cereals. Who would have thought twenty years ago that an OPEC decision regarding the price of oil would influence oleaginous products and even cereals? Too many markets are interconnected and this creates lack of predictability in the field of cereal export," he said.

He added that Romania's production continues to grow and has a great deal of potential.
He also said that there are major influences from speculative investment funds on the stock exchange, which only target profit and use no instruments for covering the volatility risk.
"I have appealed to numerous agricultural producers to better prepare for volatility and to use modern tools that we also use, such as hedging. Often they are trapped by the volatility and wake up too late when prices are very low and sometimes they put the blame on traders, saying the latter are guilty for the slowdown on the market," he explained.

There is also the volatility created by states in the Black Sea region which brings additional uncertainty. According to Beznea, whenever Ukraine or Russia have any type of issue, Romania must shoulder the provision in the Black Sea region because consumers look at Constanta or Varna, which also raises the prices. "We react the most acutely to the problems in the Black Sea region because as members of the EU we do not have the right to restriction exports, we must carry on our activity as normal. The demand grows all of a sudden for the Constanta harbour," he said.
According to Botanoiu, so far Romania has not succeeded in having a consistent expression on the stock exchange. "We do not have available the same type of product in a sufficient quantity every day of the year so that we can maintain the internal market," he said.

The agricultural cadastre is one step closer to completion

The fact that Romania obtained 265 million Euro for cadastre, as a result of the joint effort of the Ministry of Agriculture and the Ministry for Rural Development, is very good news for the players in the Romanian agriculture, pointed out Nadia Crisan, general manager McGuire Woods Romania, who moderated the second panel of the Agribusiness Forum.

"For many of you, the subject of the cadastre and its absence was a barrier in their development. These 265 million Euro, corroborated with the approximately 140 million Euro that the cadastre could obtain from its own revenues represents an important announcement for the evolution of the field. Of course, we would like to see a list of priorities and the regions that will first enter the process of registration of the lands, especially since not all areas are not equally interesting for you and the foreign investors," suggested Crisan.

According to Botanoiu, the 265 million Euro is part of a bigger sum of 415 million Euro dedicated only to the agricultural cadastre. "I think it will be finalized in at most four years," he said.

The wind of modernization is blowing

In order to avoid bottlenecks in the trade of agricultural products, Romania needs to pay more attention to the issue of logistics by modernising all the links of the commercial chain.
According to Beznea, the Constanta harbour has made huge progress, and now has a one million-tonne capacity and very high loading power. While in the past a long-distance ship with a capacity of 50,000- 60,000 tonnes could be loaded in approximately six days, today this can be done in just under one day. "We still come across blockages in summer because there are a lot of transactions during the crop period and after that, quiet. When the cold season arrives, there is not so much activity. Here I think there is a positive trend because with the support of the authorities and European money, farmers are acquiring modern warehouses and manage to store their merchandise. More and more of them are managing to do that so we can predict a curve in these peaks," Beznea pointed out.

The actions of the Romanian authorities must be in accordance with the 2020 programs as far as the workplaces, competitiveness, the functioning of the market, exports and guaranteeing productivity are concerned, because if producers do not have a guaranteed profit, they will quit what they are doing, explained Botanoiu. He said that after they leave the rural environment, it is much more difficult to bring them back.

The Romanian authorities also set up a cross-ministerial committee regarding the commercial relations that appeared after the embargo by the Russian Federation. "I believe that it is important to announce that 1,350 checkups were carried out, 87 criminal files were initiated just over the last two weeks, as well as 50 preliminary investigations," said Botanoiu.